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What is the 'Consumer Price Index - CPI'

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

BREAKING DOWN 'Consumer Price Index - CPI'

The U.S. Bureau of Labor Statistics reports the CPI on a monthly basis. Two types of CPIs are reported each time. The CPI-W measures the Consumer Price Index for Urban Wage Earners and Clerical Workers. The CPI-U is the Consumer Price Index for Urban Consumers. It accounts for 89% of the U.S. population and is the better representation of the general public. The CPI-W is a subset that covers 28% of the U.S. population.

The CPI is used by the president, Congress and Federal Reserve Board to formulate fiscal policies based on the monthly findings and how inflation or deflation is presented. The CPI rate is expected to be 2% or under by the U.S. Department of Labor. If this inflation measure hits above the 2% level, borrowing rates may be raised to help fight off inflation. Sometimes, such as in 2014, the CPI rising above 2% is not enough to get rates raised. Other inflation gauges are also used to decide the level of inflation.

What Is in the CPI?

The CPI statistics cover professionals, self-employed, poor, unemployed and retired people in the country. People not included in the report are nonmetro populations, farm families, armed forces, and people serving in prison and those in mental hospitals.

The CPI represents the cost of a basket of goods and services across the country on a monthly basis. Those goods and services are broken into eight major groups:

• Food and beverages

• Housing

• Apparel

• Transportation

• Medical care

• Recreation

• Education and communication

• Other goods and services

CPI Regional Data

The Bureau of Labor Statistics also breaks down the CPI based on regions. Each month, the report is broken out into the four major Census regions: Northeast, Midwest, South and West. Three major metro areas are also broken out each month. The regions are Chicago-Gary-Kenosha, Los Angeles-Riverside-Orange County and New York-Northern NJ-Long Island.

Along with the regional information provided each month, the Bureau of Labor Statistics also publishes reports for 11 additional metro areas every other month and an additional 13 metro areas semi-annually. These reports cover areas with large populations and represent a particular region subset.

To learn how to take advantage of inflation, read How to Profit From Inflation and The Consumer Price Index: A Friend to Investors.

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